Global Commodity Markets in 2025 and Beyond

Global Commodity Markets in 2025 & Beyond

Shared at International Convention

By:

Vijay Sardana

When you drive around the Delhi city roads, you will notice solar panels on newly constructed roads and metro trains all over the city. What will be the impact of such developments of commodity markets?

A few years back Delhi was fully dependent on diesel for the public transport system, then came CNG and now electricity. What is the impact of these developments on oil marketing company?

Now within the Electricity, we are talking about the source of electricity – whether from renewable or polluting sources. These are already happening around us. Please also note many of these developments are just a few years old. Imagine what will happen 15 years from now onwards and who these developments will impact commodity markets.

Future of Commodities:

One of the long-term trends facing our planet is the fact that our world population continues to grow at a rapid pace. The United Nations predicts that the global population will increase by 20% by the time we hit 2030. This population growth will continue to place a greater strain on the limited supplies of the world's natural resources.

Metals and other materials will be needed to build vital infrastructure. Vast amounts of energy resources are needed to provide electricity and to power western-style transportation. Tons of soft and agricultural commodities will be required to meet the world's growing middle-class demand for meat and other foods. As emerging and frontier markets continue to grow, commodities sector will continue even more important.

In order to facilitate the use and trade of various commodities, exchanges have been set up to allow participants to buy and sell these critical natural resources. Futures and spot prices for items like crude oil, corn, gold, and others are now commonly priced for end-users and speculators, alike.

However, not all-natural resources can be found on these exchanges. As our global population continues to grow, growing demand for these "other" commodities is almost assured.

Shifts taking place in the way resources are consumed as well as produced—these are less noticed by the trade because manager mainly focuses on the commodity price. These are no less significant developments. These developments will change the way we look at commodity markets because these will change the world order and global economy. These shifts are the result of technological innovation, including the adoption of robotics, Internet of Things technology, new materials, data analytics, artificial intelligence, 3D printing, etc along with macroeconomic trends and changing consumer behavior and preferences.

One can notice that following effects will be common due to this technological revolution:

·      Consumption of energy will become less intense as people use energy more efficiently. Evaluate the energy use in new production capacities in factories and power consumption for the same production capacity in last 30 years.

·      Better sensors and other energy-saving devices in factories, homes, and offices, and the use of analytics and automation to optimize factory usage will change the cost of production hence the demand for various commodities

·      Transportation, the largest user of oil, will be especially affected, by more fuel-efficient engines and by the growing use of autonomous and electric vehicles with high-performance batteries and IT platform based ride-sharing services around the world.

·      Technological advances will continue to bring down the cost of renewable energies such as solar and wind energy, as well as the cost of storing them. This will hand renewables a greater role in the global economy’s energy mix.

·      Resource producers will be able to deploy a range of technologies in their operations, putting mines and wells that were once inaccessible within reach, raising the efficiency of extraction techniques, shifting to predictive maintenance, and using sophisticated data analysis to identify, extract, and manage resources.

·      Remote operations of many production systems like drones, many factories, surveillance, and transport system will help in exploring cheaper sources of commodities.

·      The shifts in demand and supply situation are having an impact on wealth creation in markets. The resource sector lost $2 trillion in cumulative shareholder value as global spending on commodities fell by 50 percent in 2015 alone.

·      Many experts claim that these developments will unlock $900 billion to $1.6 trillion in incremental cost savings throughout the global economy in next 20 years.

·      As a result of lower energy intensity and technological advances that improve efficiency, energy productivity in the global economy could increase by 50 to 100 percent in next 20 years.

·      Author believe these changes will have significant implications on not just for commodity companies in the resource sector and for countries that export commodities and resources, but also for businesses and consumers around the world. If you go further deep into the implications of these developments these will impact the regulatory and governance system of the countries as well.

·      The changing commodity demand-supply situation will have a political undercurrent as well. In the case where declining performance came as a result of growing difficulty in accessing resources, rising costs of inputs, a willingness to sacrifice productivity in return for growth, and increasing competition among producers for both assets and services will look for new political alignments.

·      “America First” political message will also be replied in the political terms and once again it may impact the demand-supply equation.

Impact on Energy Sector:

Now new energy supplies are becoming available through technological advances such as hydraulic fracturing and in alternatives such as wind and solar power, which continue to make inroads in the global energy mix. This new investment reached more than $1 trillion per year at its height.

India and China’s changing growth model and global demographic and energy consumption trends will affect future resource demand. India and China’s rapid industrialization, its urbanization on a massive scale, and these surging economic growths are the primary factors which will impact global prices.

Impact on Minerals:

India and China will consume more than half of the global supply of iron ore and thermal coal and other minerals. India and China will move from an investment-driven economic model to a service- and consumption-led one, and reduced its appetite for additional resources. The conventional materials demand may shift to new raw materials. Metal will be replaced by better plastics in city transport systems. 3D printing technology will also change the designing and fabrication technology. This will affect resource demand going forward.

Impact of lower commodity prices on the world market:

Lower commodity prices could in theory act as a stimulus to consumption and growth, but the shock of the downturn may intensify the prevailing trends of weak investment and job creation, slowing trade and economic growth, and increasing deflationary risks. For example, cheaper electricity cost may increase demand for more white goods luxury and comfort in daily life but may not increase the demand for coal or fuel oil but investment in better storage systems and better renewable energy sources.

Future of Economic Growth:

The outlook for projected global GDP growth over the next two decades is more subdued than it was in the previous years. This is due in part to global demographic trends, including the declining share of the working-age population in OECD countries. Aging population of China will impact global demand-supply equation. India may not replace China in consumption trends due to various geopolitical reasons.

Better technology for productivity will compensate for employment declines in order support GDP growth.

Where are the emerging markets?

Emerging economies will continue to drive demand for resources as infrastructure is built out and citizens consume more goods. However, no other emerging economy, including India, is likely to replicate the scale or the investment intensity and resource intensity of China’s industrialization. That is because much of this economic growth will benefit from technology-enabled improvements in resource productivity that are the focus of this report.

In advanced economies, meanwhile, peak consumption of many mineral resources could become a reality as technology makes economic activity more productive and as these economies continue their shift to more consumer-driven, service-centric growth.

Employment will remain the challenge for the political governance around the world.

Drivers of Disruption: Regulations or Technology

In the past, changes in the commodity and manufacturing sectors were the result of regulations. In coming decades, technology and its effect on costs will be the main drivers of change and bring significant disruption to the commodity space, although policies and regulations could still have a substantial impact.

Options for Policymakers and business leaders:

Policymakers and business leaders must consider that there will be different scenarios in different economies for resource supply and resource demand including commodities.

In case of moderate technology adoption scenario, which assumes improved energy productivity from the greater deployment of technology to support energy efficiency and reduce the cost of renewables, as well as increased productivity for resource producers, and in the scenario, of accelerated technology adoption case, which assumes a faster rate of adoption of technologies and therefore greater energy and resource productivity.

For both of these scenarios, the productivity of resource extraction for main commodities will improve as oil and gas and mining companies deploy robotics, drones, data analytics, Internet of Things, and other relevant technologies.

The main difference between the two scenarios is the pace and extent of technological adoption by both producers and consumers. Depending on the scenario, from a combination of demand reduction, substitution, and increased productivity by resource producers. Technology can improve the efficiency of resource use and reduce consumption. Technology will change the ways consumers live and reduce resource consumption. A significant increase in the energy productivity of the global economy will come from changes in the transportation sector, increased energy efficiency in industrial, residential, and power usage, and greater substitution by renewables.

At least two-thirds of this saving is derived from reduced demand for energy as a result of greater energy productivity and from growing use of renewables. The technology payoff from resources will have far-reaching benefits for the global economy. The world will save about 25% of energy cost in next two decades. The incremental net saving for the world will be about trillion dollars plus a year. These figures reflect the opportunity to reduce spending on resources and redeploy the savings to other, more productive parts of the economy.

This will help in saving greenhouse gas emission as well.

Challenges  in adopting the Change:

While evaluating the potential benefit of deployment of technology, we should consider adoption rates for these technologies are likely to vary from region to region and country to the country, depending on factors including government policy, the cost of deployment including hardware and software costs, and the level and rate of economic development.

Future commodities on exchanges:

Our rising global population and changing lifestyle and technological developments are putting all sorts of pressures on the planet's natural resources. With this factor, not abating, a variety of commodities with supply constraints and growing demand will find themselves trading on futures exchanges in the decades.

You should not be surprised if you find part of the crude oil trade is replaced by water. There will be a globally integrated market for fresh water by 2050. That will include futures and spot pricing, along with fleets of water tankers and storage facilities that will dwarf those we currently have for oil and natural gas.

New materials and new types of rare metals will be traded on the exchanges which are not so well known like neodymium, europium, and samarium. However, these minerals are becoming an ever-increasing important part of the global economy. These elements are critical components of many electronic devices such as cell phones, flat panel TVs, electric cars and hard drives. There are huge swings in the pricing of these various strategic elements.

Nations holding large rare metals reserves - including Malaysia, Russia, China, U.S., and others will begin to expand production and refine the metals, an international exchange will be necessary to facilitate proper pricing. While it could take years to do the increasing demand for these high-tech elements will almost guarantee it.

The technology will change the way commodity markets are operating. Is your organization ready to face the challenge and service the clients in changing with time and adopt new market trends? If not, feel free to contact the author on the way forward.

About the Author:

Vijay Sardana is well recognized and experienced senior corporate director, advisor, speaker, writer, author, blogger, corporate trainer and well-known TV person on global, International, national and rural economy Business Policy and legal issues, with a special focus on efficient value chain development & execution of agribusinesses, global trade, and bio-economy. His contribution is recognized in the business world, among policymakers and by many national and international forums and received various recognitions and awards. He is currently part of various organizations as Independent Director of the Board with focus on Corporate Governance. With his technical, legal and commercial expertise guiding and preparing business organizations for transition in global technological eco-system in India as well as outside India.

Blog: “Vijay Sardana Online”

You may contact author for International Commodity Value Chain Planning, Development & Execution insights.